Short Of Stars, Charity Navigator Looking For New CEO, Fundraising Results

May 1, 2015       Patrick Sullivan      

It looks as if Charity Navigator is missing a star. The sector watchdog has embarked on a three-year, $8.5 million fundraising campaign aimed at doubling the Glen Rock, N.J.-based organization’s size. To get a four-star rating from Charity Navigator, organizations have to spend 10 percent of their budget or less on fundraising. Charity Navigator has spent about 15 percent since the campaign kicked off this past October.

Ken Berger said the organization began tracking donations on Dec. 1, 2014 and produced a report tallying donations for December and January. He made the comment while he was the organization’s president and chief executive officer. He has since left the watchdog. “The total was just shy of $700,000,” said Berger, who stepped down on March 30. “That’s the beginning. This year we’re hoping to raise around $2.5 million.”

Berger explained the 15 percent like this: Charity Navigator does not rate organizations that are less than seven years old “because we know during the first seven years when trying to scale up, their metrics and costs, figuring out their business model, it takes time.”

Charity Navigator was founded as a private foundation in 2001. The organization converted to a public charity in 2013. “We are two years old in that sense,” said Berger. “We are very much in that early stage, significantly ramping up our fundraising. Our anticipation is that our (development) department will grow the agency over the coming years and we hope to fall into line by seven years.”

Philanthropists John “Pat” and Marion Dugan solely funded the organization until 2013. A Form 990-PF was filed until that year. According to its most recent financial statement, approximately 62.6 percent of its revenue — or $871,000 of a total $1.39 million — was from individuals in the fiscal year ending 2013. Foundation support made up $235,500 in that year, and some $284,000 was from its foundation and board.

How Berger’s exit from the organization will affect the fundraising campaign remains to be seen. Tim Gamory, Charity Navigator’s chief information officer, is now acting chief operating officer. A search is under way for the top position but a search firm has not yet been selected, John Dugan said.

“It was a resignation, in a sense,” said Dugan. “It is a very amicable parting of the ways.” Berger’s skills were more in coordination and articulating the organization’s message, he said. “He wasn’t totally out of touch with technology,” said Dugan, but the organization requires a deeper knowledge.

“Charity Navigator 3.0” will involve a more concentrated technology focus as the organization moves to monitoring and reporting outcomes and a leader with more technology experience was necessary.

“If we are going to pull off 3.0, and we are going to pull it off, we had to start at the top. We needed someone deeper in technology,” said Dugan. The goal, he said, is to evaluate 20,000 charities, upping it from the 8,000 currently rated.

After a period of months talking about what’s next for Charity Navigator, Berger said one of the goals was to significantly increase the board’s membership, especially from the technology world. “Based upon that, the organization came to the conclusion that increasingly seeing themselves as tech company. And so, leadership needs to be tech savvy, in terms of big data and being data savvy, and that’s not my skill set,” he said. The board was made up of nine members when Berger became CEO in 2008 and today there are 16, with at least four who are from the technology side of things.

“It was a mutually amicable and friendly departure for me,” said Berger, who will continue to finish a book about charitable giving and Charity Navigator. He hopes to continue to do work in and for the philanthropic community in some way.

Among the board members added in recent months were Matt Giegerich, president & CEO of Ogilvy CommonHealth Worldwide; Luke Beatty, Head of Product, for AOL; Marie Wieck, GM, Application Integration Middleware & WebSphere for IBM US; and, and Kern Schireson, executive vice president, Data Strategy & Consumer Intelligence for Viacom Media Networks.

“In the context of where we go from here, beyond Charity Navigator 3.0, what’s next for Charity Navigator? One example, how do we automate some of the data compilation such that staff and analysts can more effectively use their time on qualitative analytics,” Berger said rhetorically. “I always thought of Charity Navigator as a critical friend of the sector: critically important in a number of ways, but also critical, speaking out more bluntly, good as well as bad, because of its outside role, because they make judgments on the performance of charities,” he said.

Berger joined Charity Navigator after a long career in the nonprofit sector, and brought plenty of fundraising experience.

“Because Charity Navigator makes judgments and says this is a charity that’s high performing, this is a charity that is not high performing, because of the nature of that job we make some people angry that you might normally consider your audience,” said Berger. “Some foundations, some individuals, even some nonprofits that have donors to whom they may speak ill of Charity Navigator. It creates a unique set of challenges but also a unique opportunity, because if people see that we are having a voice that will speak out, that’s the audience we’re trying to approach.”

The organization has thus far done almost all of its fundraising in-house without engaging in joint allocation. Berger said he did have help putting out mailings and generating an annual report, but called the costs minimal. “One thing we did do that did cost more was engage a consulting firm to help us complete a fundraising growth study and assess our best opportunities to scale up.”

That study revealed something that surprised Berger. “We thought foundations and earned income through data sales would be our lever (for scaling up), but based on the study it’s really individual donors.” Berger added that foundation funding has been hard to come by, possibly due in part to prejudices against and misconceptions around the work done by Charity Navigator.

Approximately 0.5 percent of Charity Navigator users also donate. “The plan in a nutshell is to increase that to 2 percent (or 100,000 users per year). Then we’ll be sustainable and scale up easily,” said Berger. “But we have to engage and delight a larger number of users. The other side of this is (growing) a larger IT department to bring the website more up-to-date and user friendly as a means of increasing the number of people who use the site.”

The campaign is focused evenly on mobilizing existing supporters and gaining new ones. So far it’s been about 60 percent weighted toward prior donors. Berger thinks of potential donors as falling into three camps: Those who are already convinced by and committed to what Charity Navigator does; Those who hate Charity Navigator no matter what it does; and those who are ambivalent or misinformed. “Absolutely we’d like to convert them,” said Berger.

Put Steven Nardizzi into that second camp. The CEO of Jacksonville, Fla.-based Wounded Warrior Project said that Charity Navigator is “essentially telling donors something that isn’t true, that you can look at charities and tell donors that this charity is more effective than that charity,” he said. “What they’re judging is business decisions made by the charity. Those business decisions out of context are not helpful to donors and out of context is potentially misleading.” Wounded Warrior gets a three-star rating from Charity Navigator out of a possible four stars.

The nonprofit sector is simply too large and too diverse for one organization to make qualitative evaluations of thousands of others, said Nardizzi. He pointed to the realm of veterans services. Charity Navigator has ratings for Disabled American Veterans, Wounded Warrior Project and USO.

“We’re all in the veterans charity arena but we all approach the way we help in very different ways,” he said. “USO does wonderful work for troops overseas. It’s a very different mission than Disabled American Veterans, which is out there advocating for increases in veterans’ benefits and representing them in their benefits claims. Wounded Warrior Project provides comprehensive human services. All three have different models that Charity Navigator would attempt to drill down into a star rating.”

Berger thinks the fundraising campaign’s focus will be on major donors. They will be the “bridge to sustainability,” he said. Once the bridge is built, “it’s going to be the tremendous number of small donors,” who will keep the organization sustainable. “We want to improve our website and our abilities to raise funds. Ongoing sustainability will be small, individual donors who use the site.”

The fundraising campaign has so far been a confirmation of issues about which Charity Navigator was already aware. An advisory group of CFOs and audit firms helped the organization come to the conclusion that a snapshot of one moment in time is not the best way to evaluate a given organization’s fundraising.

The advisory group “came up with action steps we’re in the process of working on. One of them is to do seven-year averaging,” said Berger. He said that going through a fundraising campaign has made it evident that a seven-year average is more appropriate, and the organization might have come to that conclusion via experience with the campaign.

“We have learned things about our unique vehicles and models to raise funds,” said Berger. “If anything (the campaign) reinforced the seven-year design (of not rating charities before they are seven years old) because we see it happening to us. It has also deepened that commitment to the seven-year (fundraising) average.”

The campaign will build capacity for some fundamental changes at Charity Navigator, he hopes. Along with evaluating fundraising with a seven-year average, Berger hopes to equalize some of the financial metrics. “At the moment we have two metrics in fundraising. That’s out of proportion to our other financial metrics,” he said.

The biggest change in store for the post-campaign Charity Navigator is the eventual reworking of its ratings system to measure charities based on outcomes. “In the future, the biggest element of our rating system is going to be results reporting,” said Berger.

Nardizzi remains unconvinced. “I honestly think that they’re going to make their system more confusing and more misleading to donors,” he said. Nardizzi would prefer more of a clearinghouse of outcome metrics instead of a comparison and rating. Charity Navigator’s rating system is convoluted enough. “When you add in impact measurement it will make matters worse,” he said.

Berger likens the management of nonprofits to a tricycle, with two small wheels and one big wheel. The small wheels are finance and governance and the big wheel is results. “Fundraising, when you put it into the perspective of this tricycle, is a small segment of one of the back wheels,” he said. “We’re building performance measurements to measure our outcome. That’s why charities exist: to meet a mission, and we think it should be done in a measurable way.” NPT

NPT Writers Paul Clolery and Mark Hrywna contributed to this story.

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